Discover boosts exchange rate

Several financial giants have spent the last few months reinventing themselves as Internet service providers. Citigroup, Wells Fargo & Co. and FleetBoston Financial Group are among the companies offering such things as e-procurement and e-billing platforms. Now, Discover Financial Services Inc. is getting in on the craze.

Discover Business Services, the commercial unit of Riverwoods-based Discover Financial Services, has teamed with TradeOut.com to launch a business-to-business (b-to-b) surplus goods exchange. It allows Discover's 3.5 million business customers to buy and sell surplus goods, such as office furniture and computer equipment.

Discover's exchange will be followed by other Internet initiatives aimed at its b-to-b clients, says Senior Vice-president Tom Dailey. Among these will be a program to help customers set up electronic storefronts.

The exchange, which went live April 27, is Discover's most ambitious Internet project to date. Ards-ley, N.Y.-based TradeOut.com built and hosts the site; Discover is providing the client base and marketing. TradeOut.com execs declined to be interviewed, citing the company's pre-IPO quiet period.

The site, which can be reached through Discover Business Services' portal (www.discoverbiz.com), allows users to buy and sell among themselves and with outside merchants pre-screened by Discover. Customers can browse, bid, check bid status and finish transactions online.

Discover and TradeOut.com are sharing the site's costs and revenue. Mr. Dailey would not provide details.

Discover began its exchange marketing blitz early this month with a mailing to all its b-to-b clients, including Wal-Mart Stores Inc., American Airlines, Marriott International and Safeway Inc.

Discover's 500-plus sales people, who work out of offices in Atlanta, Boston, Chicago, Dallas, New York, Orlando, Phoenix, Portland, Ore., and Wilmington, Del., will follow the mailing with sales calls. The exchange will also be touted in statement inserts.

Discover is not competing so much against its financial services brethren as against vendor-hosted procurement marketplaces. This is because the financial companies generally are launching more expansive initiatives, including hosting sites and offering global procurement platforms that are part of inclusive financial packages. (Wells Fargo, for example, markets loans and corporate banking services alongside its Internet offerings.)

Discover's initiative is for surplus goods only and aimed exclusively at domestic companies, pitting it squarely against vendors such as Commerce One Inc. and Ariba Inc. that already offer similar packages.

Indeed, some procurement industry watchers say Discover will have a difficult time taking marketshare from the big vendors.

"Ariba and Commerce One already bring so much to (maintenance, repair and operations) exchanges," says Bruce Temkin, senior analyst at Forrester Research Inc. in Cambridge, Mass.

Discover's Mr. Dailey says the company's broad reach and b-to-b customer base will provide ample firepower to help it succeed.

"Discover has the people, the contracts and the access to do much larger things," he says. "And we intend to do that."